I thought I would kick off a "presentation" with a small company that appeared on a value screen of mine, the multi-media speaker manufacturer called Boston Acoustics.

Business Discription

Boston Acoustics, Inc. engineers, manufactures and markets loudspeaker systems for use in home audio and video entertainment, and in after-market automotive audio systems.

Recent Results

Sales have been declining recently, falling from $118 million in FY 1999 to $110 million in FY 2000. Sales have continued to fall in the most recent quarters, with the company predicting a net quarterly loss in the next quarter. The company recently took a hit with an inventory write down. The company attributed the downturn to a slowdown "in sales in its two business segments: home and car entertainment products and multimedia speakers for personal computers."

AnalysisBoston Acoustic seems to have been hurt by the downturn in the PC market. Despite the recent troubles, it may present an opportunity given the limited downside risk. Assuming a 5% growth rate and a 15% discount rate, I get an intrinsic value of nearly $16 a share. At the current price of $11 I believe that BOSA is trading at a 30% discount to its intrinsic value. It is also trading at a ten year low PE ratio of 9. Furthermore, BOSA is currently selling at 1.37 times book value, a level that hasn't been reached in the ten years of data I have examined. While times are certainly tough for BOSA, I don't think they are THAT tough. The company is unlikely to go bankrupt anytime soon, with EBIT covering interest payments over 14 times. The company also has a good history of putting its cash to work for shareholders, with shares outstanding shrinking from 6.5 million in 1996 to 4.9 million in 2000. If the price were to recover to its ten year average price to book ratio of 2.65 it would be worth nearly $20. A return to the ten year average PE ratio of 13.5 would put the price at $17.

Summary

It seems to me that BOSA might be worth a closer look by any serious value investor. While it looked better under $10, it still loks like there is a lot more upside than downside at $11.

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